Gas Futures End Week Lower on Milder Weather Outlook for September

The U.S. Energy Information Administration (EIA) on Thursday (June 9) reported a surprisingly bullish 65-Bcf injection for the week ended June 3—that was 8.0 Bcf below our Natgas Billboard estimate and more than 10 Bcf below the Bloomberg industry average assessment. In response, the CME/NYMEX Henry Hub July natural gas contract screamed about 15 cents higher following the report to a settle of $2.617/MMBtu, the highest daily settle for the prompt month in nearly 9 months. Thursday’s gains extended a rally that began on May 31 (2016) just after the July contract rolled to the front of the futures curve. It’s likely the rally was initially spurred by market participants looking to cover their short positions. But in the past week, an increasingly bullish fundamental picture has emerged prompting us to raise our price outlook (in our June 10 NATGAS Billboard report). In today’s blog, we analyze the fundamentals behind rising natural gas prices.

Weather is the perpetual wildcard in the natural gas market, but it’s been particularly shifty this winter, keeping market participants — and weather forecasters, for that matter — on their toes. Gas futures prices started this season at $3.30-plus/MMBtu, but then endured some of the warmest weather on record (in November and January), including a couple of polar vortex head fakes over the past month or so — weather forecasts at times in January started off much colder but ultimately reversed course. Prompt CME/NYMEX Henry Hub futures prices have seesawed as a result. Despite the weather setbacks, however, prices have held on in the $2.40-$2.70/MMBtu range through much of winter and averaged more than $0.60/MMBtu higher year-on-year in January. And, with an Arctic blast set to unfurl across the Lower 48 this week, prices last Friday topped $3/MMBtu again in intraday trading before settling in the high-$2.80s/MMBtu Friday and Monday. Today, we examine the supply-demand factors underlying the recent price action, and prospects for sustained $3/MMBtu gas prices.